Investing in outsourcing or automating internal processes

Your employees are a key resource in your business, and it's important to manage them effectively. For this reason, you want your human resource operations to run as efficiently as possible.

You may be able to save time by hiring outside businesses to handle some or all of your HR functions, or by automating internal processes you already have in place.

There is a cost for both options, but this cost may bring about new savings.


You may appreciate having an outside businesses manage your human resource administration if it allows you to:

There are a number of Web-based platforms that offer HR and employee benefits services, with everything from recruiting tools to talent management to payroll. Most can be customized to your requirements, and are often less expensive than hiring additional employees to handle these tasks.

What is human resources outsourcing?

When you rely on external experts or services to provide HR functions, you are outsourcing. You may choose a single source, or contract various services with individual providers.

Professional employer organizations integrate payroll administration, human resources services, benefits and related employer services into one seamless solution.

Business-process outsourcing providers either install the latest technologies or apply existing technology in a new way to improve your human resources system.

Application-service providers host and manage software applications on the Internet that are rented out to users. This spares you the bother and expense of buying software and installing it directly on your own hard drives or servers.

What services can you outsource?

Some providers offer complete packages of HR services, but others let you choose from a menu of options that include:

Is outsourcing right for your business?

The outsourcing decision depends on the size of your business, your human resource practices and the business climate.

With fewer than 100 employees, you may not have the resources for an in-house HR department; outsourcing may be a viable solution. When activities such as recruitment are required only periodically, it doesn't make sense to hire permanent experts.

If your business has at least 12 employees, a professional employer organization could be useful. With fewer than 12 employees, you may do better with online services.

Should your current HR practices differ from those of similar businesses in your industry, outsourcing may be costly because the service provider would need to adapt to your in-house process.

The flexibility of outsourcing may appeal to you if your business faces financial uncertainty, or operates in a volatile industry. You may be able to respond faster to changing resource needs by eliminating excess fixed costs.

Outsourcing: benefits and risks

Before outsourcing human resources functions, compare the potential benefits and risks. When you assess possible outcomes and results, consider your size, resources, goals and environment.

Benefits of outsourcing

Risks of outsourcing

Choosing an outsourcing provider

Selection criteria

Be clear about your goals, service expectations and timelines. Can the vendor complement in-house efforts? How will you measure performance?

Before choosing a provider:

The outsourcing contract

A contract defines the formal and legal elements of the outsourcing relationship, but you need not accept the vendor's standard agreement.


The cost of human resources outsourcing varies, depending on the number of employees involved, the services or options selected and your geographic location. A professional employer organization typically charges a small percentage of each employee's salary per month. Online services can include an initial set-up fee plus a monthly charge per employee. Generally, the more employees included in the plan, the lower the cost per individual.

Internal processes: Costs vs. benefits

Human resources administration involves many hidden costs, such as time-consuming and distracting manual processes. By entering or updating employee data in a single database for employee human resources and payroll records, you reduce errors, eliminate duplicate records, and save both time and money.

Cost-benefits of human resources automation

You can use your intranet to shift administrative paper functions from human resources staff to managers and employees, who can maintain employee records, file expenses or claims and provide information.

You can also provide outsourced e-services via the Internet so that employees gain direct, self-serve contact with service providers.

When using either the intranet or Internet to automate human resources functions, managers and employees must ensure that their information is correct and up to date. There will be fewer copy errors because the information is entered directly into the system, rather than transferred from a paper file. Improved accuracy saves time and money.

How to compare the costs of manual vs. automated systems

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